Correlation Between American Funds and Western Asset

Can any of the company-specific risk be diversified away by investing in both American Funds and Western Asset at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Funds and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds Developing and Western Asset Diversified, you can compare the effects of market volatilities on American Funds and Western Asset and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Funds with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Western Asset.

Diversification Opportunities for American Funds and Western Asset

0.22

Correlation Coefficient

American Funds  Western Asset

Modest diversification

The 3 months correlation between American and Western is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Developing and Western Asset Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Diversified and American Funds is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Funds Developing are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Diversified has no effect on the direction of American Funds i.e., American Funds and Western Asset go up and down completely randomly.

Pair Corralation between American Funds and Western Asset

Assuming the 90 days horizon American Funds Developing is expected to generate 2.98 times more return on investment than Western Asset. However, American Funds is 2.98 times more volatile than Western Asset Diversified. It trades about 0.04 of its potential returns per unit of risk. Western Asset Diversified is currently generating about -0.08 per unit of risk. If you would invest  1,071  in American Funds Developing on September 12, 2024 and sell it today you would earn a total of  21.00  from holding American Funds Developing or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Funds Developing  vs.  Western Asset Diversified

American Funds Developing

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Diversified has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and Western Asset

The main advantage of trading using opposite American Funds and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Western Asset can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Western Asset will offset losses from the drop in Western Asset's long position.

The idea behind American Funds Developing and Western Asset Diversified pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Content Syndication module to quickly integrate customizable finance content to your own investment portal.